Source:Windpower Monthly
A sudden spike in the price of rare earths in 2011 rang alarm bells in the wind industry, particularly among turbine manufacturers using permanent-magnet generators.
Prices soon fell back to almost pre-crisis levels, but increasing global demand is now starting to push them up again with significant implications for the wind energy industry.
The background
Rare earth elements (REEs) are minerals found in relative abundance across the globe.
The challenge is that they typically do not occur in concentrated deposits, are often found mixed together and are difficult — and therefore expensive — to separate.
While there are large deposits in Russia, Brazil, Australia, North America and Tanzania, among other places, China accounts for more than 85% of global production of REEs.
This is largely thanks to the country’s low mining and processing costs, combined with less stringent environmental standards, which enables China to undercut production elsewhere.
The REEs most commonly used in the wind industry are neodymium and dysprosium, plus small amounts of praseodymium.
Alloys of these three are key constituents of the powerful permanent magnets used in everything from smartphones, medical equipment, electric vehicles and robotics to the permanent-magnet synchronous generators (PMSGs) employed in some wind turbines.
Neodymium magnets — largely comprised of neodymium, iron and boron (see below) — are the strongest type of permanent magnet commercially available and offer highly efficient electricity generation.
PMSGs therefore allow a lighter and more compact turbine design, which is particularly beneficial at low wind-speed sites and offshore, where size is key.
They generally also require less maintenance and enhance grid compatibility.
PMSGs can be used in both geared and direct-drive drivetrains, although the amount of REEs is significantly higher in the latter (see Heavy metal — PMG use and ingredients).
Partly spurred by the 2011 price hike, the trend is for manufacturers to move away from offering direct-drive PMSGs onshore, with the notable exception of Goldwind. However, the technology’s advantages in compactness, efficiency and low maintenance costs still present a compelling argument offshore.
Of the major OEMs, offshore leader Siemens Gamesa Renewable Energy (SGRE) uses direct-drive PMSGs in all its offshore turbines, as does GE in the Haliade 6MW turbine, and most likely, its forthcoming 12MW machine. MHI Vestas’ V164 platform features a medium-speed geared PMSG, with a lower REE content.
That said, looking at the market overall, the majority of turbines currently do not use PMSGs. The most common alternatives are direct-drive machines incorporating electrically excited synchronous generators (EESG), as favoured by Enercon, and geared turbines with doubly-fed induction generators (DFIG).
This might be set to change, however, as the market shifts to increased deployment offshore and at low-wind speed sites onshore, alongside the drive towards ever higher-rated turbines.
The EU’s Joint Research Centre (JRC) found 23% of turbines used PMSGs in 2015. It estimates market penetration could reach 41% in 2020 and 72% in 2030.
Market concerns
This could matter in a world where demand for REEs is growing fast, and China has a near monopoly on production of both REEs and permanent magnets, raising questions over single-market dependency and the risk of price fluctuation — as the 2011 price spike illustrated.
In that case, it was a trade spat between China and Japan that sparked the crisis, when China imposed stringent export quotas on REEs.
Prices soared, prompting the industry to look for alternatives, both as regards sources of supply and technology choices.
But prices soon dropped and stabilised in 2015, when China scrapped its export quotas, before slumping further in late 2016. Fears of shortages and price hikes gradually faded.
Now, however, some observers are raising concerns about the growing global demand for REEs, and the potential consequences for the industry of a tariff and trade war between China and the US. The price of neodymium rose by more than 80% in 2017, according to Bloomberg.
Ryan Castilloux, managing director of consultancy Adamas Intelligence, estimates the demand for neodymium and praseodymium will double over the next seven to eight years, creating "major challenges for the supply side of the industry".
For its part, Peak Resources, which is developing the Ngualla rare-earth deposit in Tanzania, warns there will be a significant supply shortage of the two main REEs by around 2025.
This will be largely caused by structural reforms under way in China that will limit production, alongside a rapid uptake in electric vehicles and other low-carbon technologies, the company says in its 2018 white paper.
The expanding wind power industry is one of those technologies. Lynas, which mines REEs in Australia, believes the wind sector will account for around 30% of the global growth in demand for permanent magnets between 2015 and 2025.
Much of this will come from increasing deployment of direct-drive turbines offshore, but planned growth in China will also play a significant role, notes Shashi Barla, senior analyst at Wood McKenzie Power & Renewables (formerly Make Consulting).
The offshore and Chinese wind markets contributed more than 65% of demand for REEs in 2017, and that figure is likely to grow to over 80% by 2023, Barla estimates.
Market responses
If demand rises, the obvious response is to ramp up supply. Given China’s dominant position, "future growth is hinging on China increasing production", Castilloux says.
On the one hand, the government has been closing unlicensed mines, consolidating the industry and imposing stricter environmental controls (see Moral dilemma), all of which will restrict supply.
On the other, it is taking steps to better align supply and demand, such as issuing six-monthly production quotas, while removing export restrictions and tariffs.
"The price of rare earths has become increasingly rationalised in a reasonable range in China," notes Cao Zhigang executive vice president of Goldwind.
Elsewhere in the world, Australia’s Lynas was the only significant producer of neodymium and praseodymium to survive the price slump after 2011.
The company, which supplies REEs to a number of European OEMs, ships rare-earth concentrates from its Mount Weld mine in Australia to its processing plant in Malaysia.
It is currently completing a project to increase production by 35% above original design, says Andrew Arnold, Lynas’ chief legal officer.
In the US, MP Materials reopened California’s Mountain Pass mine in late 2017 after previous owner Molycorp went bankrupt in 2015.
The US’s only rare-earth mine has now reached commercial production of concentrates, which it ships to China for separation.
The company plans to increase production and separate the REEs at Mountain Pass "in the near future", says CEO Colin Nexhip.
"We aim to become a crucial part of a more diverse, stable and environmentally-friendly global supply chain for magnetic materials," he says.
Of the many other projects under development, one of the most advanced is Peak Resources’ Ngualla mine in Tanzania, with a refining facility in the UK.
The company aims to complete permitting this year, raise finance in 2019, and start commercial operation in 2023.
"It takes a minimum of three to five years for a factory to be up and running," says Michael Prassas, the firm’s general manager for marketing and sales. There are no shortcuts when bringing new capacity into production to balance supply shortages, he stresses.
It is also important to note that rare earths are found in a bundle, largely comprising the less valuable minerals.
This presents the technical challenge of mining proportionally larger amounts of all REEs to increase the output of neodymium, praseodymium and dysprosium, while the price of the most in-demand REEs has to cover the production costs of the rest, which impacts the price of permanent magnets
Technological innovation
Another response to rising prices is to use less. In the wake of 2011, as well as moving away from offering PSMGs onshore, turbine manufacturers also started improving material efficiency.
The main target has been to reduce the dysprosium content. The metal, which allows the permanent magnets to operate at high temperatures, is used in relatively small quantities, but is significantly more costly than neodymium.
SGRE, for example, has worked with its suppliers to reduce the amount of dysprosium to "significantly below 1%", the company says. Improvements were made not only in the composition of the magnet, but also in the generators’ cooling systems.
Goldwind too has been upgrading its direct-drive PMSG turbines. "Some of the permanent magnets used in Goldwind wind turbines now contain no dysprosium, while others contain less than 1%," Cao states.
The high-temperature superconductor (HTS) generators currently under development also require very small amounts of REEs.
The HTS being developed under the EU-funded EcoSwing research project uses "much less than 1kg of REEs" — largely Yttrium — per megawatt, says Jürgen Kellers, managing partner of engineering firm ECO5. The world’s first superconducting generator was installed in an Envision turbine in Denmark this autumn.
Others are aiming to eliminate rare earths altogether. UK-based GreenSpur Renewables is developing a multi- megawatt direct-drive generator using cheap and plentiful ferrite magnets.
These are about one third the strength of neodymium-iron-boron magnets, but GreenSpur’s unique axial design means the overall weight of the generator is approximately the same, says Alex Freeman, the company’s operations director.
Recycling
Industry and research bodies have also been looking at recycling permanent magnets. Goldwind is already doing so, smelting old magnets to make new ones, Cao says.
"Due to their large size and standardised model, the permanent magnets used in wind turbines can be recycled more easily than those used in other rare-earth permanent magnet products," he notes.
However, generators need to be designed from the outset so that the magnets can be easily extracted and reused. "OEMs have to arbitrage between design for recycling versus cost efficiency," Prassas argues.
They also need a "bespoke route, an ecosystem where we can trace and track and understand how the magnet is made and what exactly is in it", he adds.
Such a system will take time to set up, and for the moment recycling is still very much in its infancy. But that will change as more turbines are decommissioned.
"Collecting end-of-life magnets from turbines or electric vehicles will become a promising business case when the source is available," Castilloux believes.
Should the industry be worried?
Talk of supply-chain security and diversification, technological development and recycling of REEs are all coming to the fore again as prices trend upwards.
Many observers see the price of neodymium oxide, from which the metal is obtained, doubling to around $100/kg by 2025, if not earlier, depending largely on what happens in China, how quickly mine production elsewhere ramps up, and the rate of global growth in electric vehicles.
Given these uncertainties, the big question is whether there will be another supply crisis or if demand — and prices — will follow a more tempered rise.
Goldwind’s Cao believes "the market supply of rare earth metals can basically meet the growing demand", while the JRC sees "resilience" regarding the supply of neodymium, dysprosium and praseodymium improving until 2030.
If PMSGs do make up 72% of the wind market in 2030, as the JRC estimates, that does not mean there will be a proportionate increase in demand for REEs, according to WindEurope’s Cecchinato.
Improvements in material efficiency, substitution strategies and higher recycling rates will all serve to reduce REE usage, he argues.
Barla of Wood McKenzie estimated shortages of neodymium and dysprosium could affect the industry by 2030. However, he believes the industry will be better equipped this time round. "OEMs will find ways to deal with it," he says.
Heavy metal — PMG use and ingredients
Typical permanent magnet content of turbine generators
Low-speed direct-drive: around 650kg/MW
Medium-speed geared drivetrain: around 160kg/MW
High-speed geared drivetrain: around 80kg/MW
Source: EU’s Joint Research Centre
Typical composition of an NdFeB permanent magnet:
Neodymium (Nd): 29%
Dysprosium (Dy): 2-4%
Praseodymium (Pr): less than 1%
Iron (Fe), Boron (B) and other metals: 66-68%
Source: WindEurope
Moral dilemma — The dirty business of extracting rare earth elements
Extracting rare earth elements (REEs) from the surrounding deposits can cause serious pollution, as well as being an energy- and water-intensive process.
Acids and other solvents used to release the minerals produce highly toxic wastes, which in some areas may also be radioactive.
Chinese mines come in for particular criticism, especially around Baotou, regarded as the world’s "rare-earth capital".
Since 2016, however, China has been consolidating licensed producers into six large groups, allowing more central oversight and stricter environmental control, says Ryan Castilloux, managing director of consultancy Adamas Intelligence.
"China is promoting a series of measures to realise the green and sustainable development of the rare-earth industry," Cao Zhigang, Goldwind’s executive vice president, agrees.
That said, for the moment environmental standards fall far short of those required in Europe, North America and many other countries.
And the Chinese market remains pretty opaque. The majority of OEMs "don’t have good visibility as to the source of their REEs", Castilloux notes.
Because most permanent magnets are still manufactured in China, one alternative is to source the minerals from a supplier outside China, such as Lynas, MP Materials or, in future, Peak Resources, all of which have to adhere to strict environmental standards.
For its part, Lynas provides product assurance certificates for its REEs and tracks the material through the supply chain, including magnet makers, according to Andrew Arnold, Lynas’ chief legal officer.
Lynas and Peak Resources also offer "three-way contracts" with OEMs and magnet manufacturers. Such measures "provide security of supply, guaranteed provenance, product quality and pricing stability", Arnold says.
Code of conduct
Most OEMs also have their own checks. "Almost any company working in the wind sector has an internal code of conduct for suppliers, in which it sets the overall business conduct required, ... [which] is usually controlled through physical audits," says Mattia Cecchinato, WindEurope’s environment and planning analyst.
Siemens Gamesa, for example, says all its REE suppliers "have signed the company’s stringent environmental requirement ... and have participated in the Siemens Gamesa qualification and audit programmes regarding quality, health, safety, and environment, among other issues".
Even so, in its forthcoming research note on rare earths WindEurope recommends the industry should take further action to improve the sustainability of the supply chain.
That will have a cost, of course, eating into already tight margins. Nevertheless, it is an issue an industry that prides itself on its green credentials cannot afford to ignore.